Notes to Condensed Consolidated Financial
Statements
June 30, 2017
(Unaudited)
NOTE 1 – ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Findex.com, Inc. (“Findex”) was incorporated under the
laws of the State of Nevada on November 7, 1997, and
is headquartered in Lake Park, Florida. The Company’s EcoSmart’s
coating operations is the current driver of both operating overhead and revenue. The EcoSmart business currently centers around
a proprietary line of specialty materials coatings that have a broad range of value-adding industrial, commercial, residential
and consumer applications. In addition, Advanced Nanofibers LLC (“Advanced”) is a variable interest entity of which
the Company owned a minority 24.875% interest at December 31, 2016 and, for accounting purposes under Financial Accounting Standards
Board (FASB) guidelines, is considered the primary beneficiary among the equity participants based on qualitative and quantitative
criteria. Advanced is a Florida-based private venture founded in September 2016 by the Company and two other technology firms,
one of which has since withdrawn from involvement. The enterprise is focused on developing and globally industrializing a variety
of proprietary breakthrough advances in nano-based and other cementitious product technologies. Advanced is rapidly evolving and
expected by management to eventually outpace EcoSmart’s coating operations in terms of percentage growth on both the expense
and revenue sides. Despite Advanced’s lack of revenue to date, it is a venture that the Company’s management has been
and continues to be very actively involved in developing, and that is increasingly consuming a greater percentage of the Company’s
financial and human resources, a trend management expects to continue into the foreseeable future.
ECOSMART
The Company’s core business – known as EcoSmart Surface
& Coatings Technologies – is centered around a line of specialty industrial glass-based “smart surface” coatings
that have a wide range of uses across each of the industrial, commercial, and household market segments and that are centered around
a U.S. patented technology that, either on its own or when coupled with any of an array of available proprietary formula additives,
offers a unique combination of beneficial surface properties that allow for a broad array of multi-surface and end-product applications.
Among others, such applications currently include:
|
▪
|
Heavy Construction Equipment/Vehicles
|
|
▪
|
Oil and Gas Drilling and Related Heavy Equipment
|
|
▪
|
Industrial and Residential HVAC Equipment, Commercial Refrigeration Systems, and Power Generators
|
|
▪
|
Interior and Exterior Flooring and Tiling, Pavers and Hardscapes
|
Over time, EcoSmart intends to develop itself in the strategic direction
of becoming a leading research-oriented, high-tech specialty “smart-surface” materials development and licensing company
centered around a highly-qualified research team and state-of-the-art research lab and applying a combination of organic and inorganic
chemistries, materials science engineering, and nanotechnology. EcoSmart currently has expertise and capabilities in each of these
areas.
ADVANCED NANOFIBERS (VARIABLE INTEREST
ENTITY)
Advanced Nanofibers LLC (“Advanced”) is a variable interest
entity of which the Company owned a minority 31.37% interest at June 30, 2017 and, for accounting purposes under FASB guidelines,
is considered the primary beneficiary among the equity participants based on qualitative and quantitative criteria. Advanced is
a Florida-based, private venture founded in September 2016 by the Company and two other technology firms, one of which has since
withdrawn from involvement. The enterprise is focused on developing and globally industrializing a variety of proprietary breakthrough
advances in nano-based and other cementitious product technologies. Company management believes Advanced’s prospects are
extraordinary based on the following key factors that afford it a distinct competitive advantage:
|
▪
|
An array of industrial end-products that are meaningfully superior to competitive products by virtue of a proprietary technological processes; and
|
|
▪
|
The ability to deliver those products at price points that are competitive with existing market products that are meaningfully inferior in quality.
|
Following an equity restructuring of Advanced that occurred in May
2017 that arose out of the agreed-upon departure from the enterprise of one of the founding technology firms, at June 30, 2017,
the venture was owned and controlled approximately 94% by its remaining two founding members, the Company and Nanotech Fibers,
LLC, each of which have been actively involved in its development to date. In addition to the Company, this included, as it still
does as of the date of this quarterly report on Form 10-Q, Nanotech Fibers LLC, a recently organized, Florida-based, closely-held,
private firm engaged in various strategic pursuits within and surrounding the nanotech-based industrial building and infrastructure
materials sector. Although it is still in a pre-revenue stage of development, the Company’s management team currently devotes
a very significant percentage of its time to the business of Advanced Nanofibers.
BASIS
OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with Generally Accepted Accounting Principles for interim financial information and with the instructions
to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
Generally Accepted Accounting Principles for complete financial statements. The accompanying unaudited condensed consolidated financial
statements reflect all adjustments that, in the opinion of management, are considered necessary for a fair presentation of the
financial position, results of operations, and cash flows for the periods presented. The results of operations for such periods
are not necessarily indicative of the results expected for the full year or for any future period. The December 31, 2016 condensed
consolidated balance sheet data was derived from audited financial statements. The accompanying financial statements should be
read in conjunction with the audited consolidated financial statements of Findex.com, Inc. included in the Company’s Form
10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on April 17, 2017.
Principles
of Consolidation
The condensed consolidated financial statements include the accounts
of the Company, its wholly-owned subsidiaries (Reagan Holdings, Inc., Findex.com, Inc. Delaware, and ESCT Acquisition Corp.), and
the accounts of Advanced Nanofibers LLC, a Florida limited liability company and variable interest entity, of which the Company
has been deemed the primary beneficiary. As of June 30, 2017, the Company owns a non-controlling, minority interest of 31.37% in
Advanced. All inter-company balances and transactions have been eliminated in consolidation.
Reclassifications
Certain accounts in the Company’s 2016 financial statements
have been reclassified for comparative purposes to conform with the presentation in the Company’s 2017 financial statements
to which these footnotes relate.
Use
of Estimates
The preparation of financial statements in conformity with U.S.
Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors
that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual
results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there
are material differences between the estimates and the actual results, future results of operations will be affected. Significant
estimates include inventory evaluation for slow moving and obsolete items, collectability of accounts receivable, assessing intangibles
for impairment, useful lives of assets, and valuation of stock based compensation and consideration of variable interest entities.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.
INVENTORY
The Company’s inventories are recorded at the lower of cost
or market using the first in, first out method. The Company’s inventory consists of raw materials and finished goods. The
Company takes into consideration certain inventory items that are slow moving and obsolete and calculates a provision for these
inventory items.
INTANGIBLE ASSETS OTHER THAN GOODWILL
The Company’s intangible assets consist of patents and patents
pending acquired from third parties, and are recorded at cost. In accordance with Financial Accounting Standards Board Accounting
Standards Codification (“ASC”) 350-30,
General Intangibles Other Than Goodwill
, intangible assets with an indefinite
useful life are not amortized. Intangible assets with a finite useful life are amortized on the straight-line method over the estimated
useful lives, generally three to ten years. All intangible assets are tested for impairment annually during the fourth quarter.
REVENUE
RECOGNITION
The Company recognizes revenues in accordance with the provisions
of FASB Accounting Standards Codification (“ASC”) 605-10,
Revenue Recognition
, which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements filed with the Securities and Exchange Commission.
ASC 605-10 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue
recognition policies. The Company recognizes revenue when the earnings process is complete. That is, when the arrangements of the
goods are documented, the pricing becomes final and collectability is reasonably assured. An allowance for bad debt is provided
based on estimated losses.
Revenue is recognized when a product is delivered or shipped to
the customer and all material conditions relating to the sale have been substantially performed.
In addition, within the Company’s operations as a whole, the
Company derives part of its revenues from the sale of downloadable software products. The Company recognizes software revenue for
software products and related services in accordance with ASC 985-605,
Software Revenue Recognition
. The Company recognizes
revenue when persuasive evidence of an arrangement exists (generally a purchase order), the Company has delivered the product,
the fee is fixed or determinable and collectability is probable. In some situations, the Company receives advance payments from
the Company’s customers. The Company defers revenue associated with these advance payments until the Company ships the products
or offers the support.
RESEARCH AND DEVELOPMENT
The Company’s research
and development costs consist of direct production costs, including labor directly associated with the development of projects
and outside consultants, and indirect costs such as those associated with facilities use. For labor costs and costs of outside
consultants, the Company records the research and development costs as a reduction against either personnel costs or professional
fees. For facilities leasing related expenses, the Company records the research and development costs as a reduction against rent.
For the six months ended June 30, 2017 and 2016, the Company recognized $190,378 and $99,636, respectively, in research and development
costs.
STOCK-BASED COMPENSATION
The Company recognizes share-based compensation in accordance with
ASC 718,
Compensation – Stock Compensation
, using the modified prospective method. ASC 718 requires that the Company
measure the cost of the employee services received in exchange for an award for equity instruments based on the grant-date fair
value and to recognize this cost over the requisite service period. See Note 8.
EARNINGS (LOSS) PER SHARE
The Company follows the guidance of ASC 260,
Earnings Per Share
,
to calculate and report basic and diluted earnings per share (“EPS”). Basic EPS is computed by dividing income available
to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted EPS is computed
by giving effect to all dilutive potential shares of common stock that were outstanding during the period. For the Company, dilutive
potential shares of common stock consist of the incremental shares of common stock issuable upon the exercise of stock options
and warrants for all periods and convertible notes payable.
When discontinued operations, extraordinary items, and/or the cumulative
effect of an accounting change are present, income before any of such items on a per share basis represents the “control
number” in determining whether potential shares of common stock are dilutive or anti-dilutive. Thus, the same number of potential
shares of common stock used in computing diluted EPS for income from continuing operations is used in calculating all other reported
diluted EPS amounts. In the case of a net loss, it is assumed that no incremental shares would be issued because they would be
anti-dilutive. In addition, certain options and warrants are considered anti-dilutive because the exercise prices were above the
average market price during the period. Anti-dilutive shares are not included in the computation of diluted EPS, in accordance
with ASC 260-10-45-17.
The calculations of net loss per share for the six months ended
June 30, 2017 and 2016 excluded the impact of the following potential common shares as their inclusion would be anti-dilutive.
For the Six Months Ended June 30
|
|
2017
|
|
2016
|
Shares Issuable Upon Exercise of Outstanding Warrants
|
|
|
—
|
|
|
|
600,000
|
|
Shares Issuable Upon Conversion of Outstanding Convertible Note Payables
|
|
|
219,554,683
|
|
|
|
99,392,857
|
|
Total anti-dilutive potential common shares
|
|
|
219,554,683
|
|
|
|
99,992,857
|
|
DISCONTINUED
OPERATIONS
As of June 30, 2017 and 2016, the Company has presented $114,368
of Accrued royalties in discontinued operations. The royalties pertain to the Company’s sale of the QuickVerse
®
product line in 2011. See Note 12.
RECENT
ACCOUNTING PRONOUNCEMENTS
At June 30, 2017, there were no recent accounting pronouncements
that the Company believed would have a material impact on its condensed consolidated financial statements.
NOTE 2 – GOING CONCERN
The accompanying condensed consolidated financial statements have
been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates the
Company’s continuation as a going concern. However, as of June 30, 2017, the Company had negative working capital of $2,918,721
and an accumulated deficit of $6,985,476. These factors raise substantial doubt about the Company’s ability to continue as
a going concern. Management has taken several actions in an attempt to mitigate this risk. These actions include capital raising
initiatives involving the issuance of equity and/or notes payable to investors, as well as cash conservation initiatives involving
the issuance of equity and/or notes payable to employees and related parties in lieu of cash compensation. The accompanying condensed
consolidated financial statements do not include any adjustments related to these uncertainties.
NOTE 3 – CONSOLIDATED VARIABLE INTEREST ENTITY
The Financial Accounting Standards Board (FASB) authoritative guidance
on consolidation requires the “primary beneficiary” of a variable interest entity (a “VIE”) to consolidate
that entity. The “primary beneficiary” of a VIE, for this purpose, is a company that has a controlling financial interest
in the VIE without any corresponding voting rights control. A controlling financial interest in this regard exists when a company
is determined to have both the power to direct the activities that most significantly impact a VIE’s economic performance,
on the one hand, and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant
to the VIE, on the other. The Company is one member, among others, of a collaborative joint venture limited liability company,
Advanced Nanofibers LLC (“Advanced”). This enterprise was formed by the joint venture participants for the purpose
of focusing on globally broadening the utilization of nanoparticle-enhanced nanofibers across a diverse range of mass-market industrial
and consumer applications. The enterprise is focused on developing and globally industrializing a variety of proprietary breakthrough
advances in nano-based and other cementitious product technologies. Having been involved in the formation of Advanced in September
2016, the Company determined during the fourth quarter of 2016 that it was the primary beneficiary of Advanced, among the equity
participants, based on qualitative and quantitative criteria. Among other factors, and more specifically, it was determined that
the equity investors in Advanced do not, and are not obligated to, provide sufficient financial resources for the entity to support
itself in terms of day-to-day research and development activities. However, the Company has provided financial support that is
disproportionate to its equity interest, and the Company’s management was involved in the organization of the entity. U.S.
GAAP thereunder, requires a VIE to be consolidated by a company if and when that company holds a majority of the variable interests
in the entity and is thus subject to a majority of the risk of loss from the VIE’s activities. For the six months ended June
30, 2017, the Company provided the financial resources in the amount of $128,486 as support for Advanced’s day-to-day research
and development activities and a total of $181,236 since Advanced’s inception. See Note 1.
The carrying value of the assets and liabilities of Advanced which
are consolidated as of June 30, 2017 are as follows:
|
|
June 30, 2017 (Unaudited)
|
|
December 31, 2016 (Unaudited)
|
Assets
|
Current Assets:
|
Cash and cash equivalents
|
|
$
|
96,492
|
|
|
$
|
4,020
|
|
Total current assets
|
|
|
96,492
|
|
|
|
4,020
|
|
Total assets
|
|
$
|
96,492
|
|
|
$
|
4,020
|
|
|
Liabilities and Members’ Equity
|
Current Liabilities:
|
Due to Findex.com, Inc.
|
|
$
|
81,236
|
|
|
$
|
52,750
|
|
Accounts payable
|
|
|
3,419
|
|
|
|
—
|
|
Total current liabilities
|
|
|
84,655
|
|
|
|
52,750
|
|
Stockholders’ equity:
|
Members’ investment
|
|
|
204,020
|
|
|
|
4,020
|
|
Accumulated deficit
|
|
|
(192,183
|
)
|
|
|
(52,750
|
)
|
Total members’ equity
|
|
|
11,837
|
|
|
|
(48,730
|
)
|
Total liabilities and members’ equity
|
|
$
|
96,492
|
|
|
$
|
4,020
|
|
|
Net loss
|
|
$
|
(139,433
|
)
|
|
$
|
(52,750
|
)
|
NOTE 4 – INVENTORIES
Inventories consisted of the following:
|
|
June 30, 2017
|
|
December 31, 2016
|
Raw materials
|
|
$
|
22,600
|
|
|
$
|
25,712
|
|
Finished goods
|
|
|
2,710
|
|
|
|
2,337
|
|
Reserve for obsolete inventory
|
|
|
(2,750
|
)
|
|
|
(2,773
|
)
|
Inventories
|
|
$
|
22,560
|
|
|
$
|
25,276
|
|
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
June 30, 2017
|
|
December 31, 2016
|
Office equipment
|
|
$
|
3,466
|
|
|
$
|
3,466
|
|
Warehouse equipment
|
|
|
76,339
|
|
|
|
76,339
|
|
Computer equipment
|
|
|
8,708
|
|
|
|
8,708
|
|
Research lab
|
|
|
10,334
|
|
|
|
10,334
|
|
Office fixtures
|
|
|
3,750
|
|
|
|
3,750
|
|
Less: accumulated depreciation
|
|
|
(86,159
|
)
|
|
|
(76,920
|
)
|
Property and equipment
|
|
$
|
16,438
|
|
|
$
|
25,677
|
|
For the six months ended June 30, 2017 and 2016, the Company recorded
depreciation expense of $9,239 and $8,730, respectively.
NOTE 6 – INTANGIBLE ASSETS
The Company’s intangible assets consist of patents and patents
pending acquired from third parties, and are recorded at cost. The Company amortizes the costs of its intangible assets over their
estimated useful lives unless such lives of approximately 11 years. Patents pending are not amortized unless and until the patents
are issued. Amortizable intangible assets are tested for impairment based on undiscounted cash flows and, if impaired, written
down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested
for impairment, at least annually, and written down to fair value as required.
The Company’s intangible assets, net of accumulated amortization
consisted of the following:
Patents and/or software licenses, net
|
|
June 30, 2017
|
|
December 31, 2016
|
Cost
|
|
$
|
697,955
|
|
|
$
|
697,955
|
|
Amortization
|
|
|
(412,350
|
)
|
|
|
(388,594
|
)
|
Net intangible assets
|
|
$
|
285,605
|
|
|
$
|
309,361
|
|
The Surface Modification Technologies assets include a patent, a
patent pending, trade secret technology, instructions, manuals and materials on certain manufacturing processes and know-how. For
the six months ended June 30, 2017 and 2016, the Company recorded amortization expense of $23,756 and $23,756, respectively. See
Note 1.
NOTE 7 – NOTES PAYABLE AND NOTES PAYABLE
- RELATED PARTIES
At June 30, 2017 and December 31, 2016, notes
payable consisted of the following:
|
|
June 30, 2017
|
|
December 31, 2016
|
Notes payable
|
|
$
|
328,783
|
|
|
$
|
336,283
|
|
Notes payable, convertible
|
|
|
25,000
|
|
|
|
25,000
|
|
Notes payable, related parties, convertible
|
|
|
1,824,633
|
|
|
|
1,824,633
|
|
Total
|
|
$
|
2,178,416
|
|
|
$
|
2,185,916
|
|
NOTES PAYABLE
Notes payable consisted of the following:
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Note payable to a former shareholder, past due as of January 2012, together with accrued interest at 5% APR and interest on overdue principal accruing at 10% APR.
|
|
|
(a)
|
|
|
$
|
28,783
|
|
|
$
|
28,783
|
|
Note payable to a shareholder, past due as of August 1, 2015, together with accrued interest at 10% APR.
|
|
|
(b)
|
|
|
|
300,000
|
|
|
|
300,000
|
|
Note payable to a shareholder, payable upon demand, together with imputed interest only, as applicable.
|
|
|
(c)
|
|
|
|
—
|
|
|
|
7,500
|
|
Total
|
|
|
|
|
|
$
|
328,783
|
|
|
$
|
336,283
|
|
As of June 30, 2017, the Company had outstanding a past due note
payable (b) to a shareholder in the amount of $300,000. During the six months ended June 30, 2017, the Company paid note payable
(c) to a shareholder in the amount of $7,500.
At June 30, 2017, the Company was in arrears
on an unsecured term note payable (a) to a former shareholder, and a separate unsecured term note payable (b) to a current shareholder.
NOTES PAYABLE, CONVERTIBLE
Notes payable, convertible consisted of the
following:
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Note payable to an investor due as of January 20, 2018, together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
|
|
(a)
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Total
|
|
|
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
NOTES PAYABLE, RELATED PARTIES, CONVERTIBLE
Notes payable, related parties, convertible
consisted of the following:
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
Note payable to a company controlled by an outside director (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.01 per share of common stock.
|
|
|
(a)
|
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Note payable to the Company’s outside general counsel (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.01 per share of common stock.
|
|
|
(b)
|
|
|
|
150,000
|
|
|
|
150,000
|
|
Note payable to an outside director (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.01 per share of common stock.
|
|
|
(c)
|
|
|
|
30,000
|
|
|
|
30,000
|
|
Note payable to the Company’s outside general counsel (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
|
|
(d)
|
|
|
|
120,000
|
|
|
|
120,000
|
|
Note payable to the Company’s outside general counsel (also a shareholder), due on demand together with accrued interest at 12% APR, and convertible at $0.008 per share of common stock.
|
|
|
(e)
|
|
|
|
10,000
|
|
|
|
10,000
|
|
Note payable to a related party investor (by virtue of shareholding percentage, both actual and on an as-converted basis), due November 13, 2018 together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
|
|
(f)
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Note payable to a related party investor (by virtue of shareholding percentage, both actual and on an as-converted basis), due March 4, 2017 together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
|
|
(g)
|
|
|
|
50,000
|
|
|
|
50,000
|
|
Note payable to a related party investor (by virtue of shareholding percentage, both actual and on an as-converted basis), due March 18, 2019 together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
|
|
(h)
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Note payable to a related party investor (by virtue of shareholding percentage, both actual and on an as-converted basis), due May 12, 2019 together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
|
|
(i)
|
|
|
|
50,000
|
|
|
|
50,000
|
|
Note payable to a related party investor (by virtue of shareholding percentage, both actual and on an as-converted basis), due June 7, 2019 together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
|
|
(j)
|
|
|
|
200,000
|
|
|
|
200,000
|
|
Note payable to a related party investor (by virtue of shareholding percentage, both actual and on an as-converted basis), due July 28, 2019 together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
|
|
(k)
|
|
|
|
300,000
|
|
|
|
300,000
|
|
Note payable to an outside director (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
|
|
(l)
|
|
|
|
55,500
|
|
|
|
55,500
|
|
Note payable to an outside director (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
|
|
(m)
|
|
|
|
20,500
|
|
|
|
20,500
|
|
Note payable to the Company’s president and chief executive officer (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
|
|
(n)
|
|
|
|
349,329
|
|
|
|
349,329
|
|
Note payable to the Company’s controller who is also a shareholder, which note is due on demand together with interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
|
|
(o)
|
|
|
|
134,604
|
|
|
|
134,604
|
|
Note payable to the Company’s vice president of research and development (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
|
|
(p)
|
|
|
|
49,000
|
|
|
|
49,000
|
|
Note payable to an independent contractor (also a shareholder), which note payable is due on demand together with interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
|
|
(q)
|
|
|
|
25,700
|
|
|
|
25,700
|
|
Note payable in the name of a son of an outside director (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.005 per share of common stock.
|
|
|
(r)
|
|
|
|
20,000
|
|
|
|
20,000
|
|
Total
|
|
|
|
|
|
$
|
1,824,633
|
|
|
$
|
1,824,633
|
|
Notes (a), (c), (l) and (r) reflect amounts due to a single outside
director of the Company, who is also a shareholder, based on such director having (i) made certain vendor obligation payments directly
on behalf of and for the benefit of the Company, (ii) having advanced certain funds to the Company at various dates for general
working capital purposes, and (iii) having accrued director’s fees earned through September 15, 2016. In addition, the Company
has recorded accounts payable, related parties, in the amount of $12,366 to the holder of notes (a), (c), (l) and (r).
Notes (b) and (d) reflect payment obligations owed to the Company’s
outside general counsel for legal services incurred by the Company for the years ended December 31, 2015 and 2014.
Note (e) reflects a convertible debt investment made by the Company’s
outside general counsel to the Company.
Notes (f), (g), (h), (i), (j) and (k) reflect amounts due to a certain
related party investor and significant shareholder for convertible debt investments made from time to time as indicated.
Note (m) reflects amounts due to an outside director, who is also
a shareholder, for accrued director’s fees earned through September 15, 2016.
Note (n) reflects amounts due to the Company’s president and
chief executive officer, who is also a shareholder, for previously accrued base salary.
Note (o) reflects amounts due to the Company’s controller,
who is also a shareholder, for previously accrued base salary.
Note (p) reflects amounts due to the Company’s vice president
of research and development, who is also a shareholder, for previously accrued wages.
Note (q) reflects amounts due to an independent contractor who was
President of one of EcoSmart’s divisions prior to the merger with EcoSmart and a current shareholder of the Company, for
past earnings. See Note 10.
For the six months ended June 30, 2017, the Company did not receive
any proceeds from the issuance of new convertible notes payable. For the year ended December 31, 2016, the Company received proceeds
from the issuance of convertible notes payable in the amount of $45,000 and an additional $700,000 from the issuance of convertible
notes payable to related parties (total $745,000).
At June 30, 2017, the Company was in arrears
on the convertible note payable (g) to a related party investor.
NOTE 8 – STOCKHOLDERS’ DEFICIT
Common
Stock
For the six months ended June 30, 2017, the Company sold 22,800,000
restricted shares of common stock at $0.01 per share for total proceeds of $228,000.
For the six months ended June 30, 2017, the Company granted 1,143,283
restricted shares of common stock for business development services. The Company valued the shares based on the closing price of
the Company common stock on those days during which such services were performed. This resulted in $22,585 of expense for the six
months ended June 30, 2017.
COMMON
STOCK WARRANTS
The Company did not issue warrants for the six months ended June
30, 2017 and 2016 and no warrants were exercised. Twelve warrants, exercisable in the aggregate for a total of 3,650,000 shares
of common stock, expired prior to exercise during the six months ended June 30, 2016. As of June 30, 2017, there were no warrants
outstanding.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims that may
arise in the ordinary course of business. In the opinion of management, the amount of potential liability the Company is likely
to be found liable for otherwise incur as a result of these actions is not so much as would materially affect the Company’s
financial condition.
The Company occupies an office building for its corporate headquarters
located in Lake Park, Florida. In January 2015, the Company renewed a lease agreement with a shareholder for this 8,560 square
foot facility under a five year lease agreement ending December 31, 2019 with an option to renew for one successive term of five
years at the then current occupancy rates. The monthly rent, including sales and use taxes, is $7,211. In accordance with the terms
of the leasehold agreement, the Company is responsible for all utilities, repairs and maintenance.
In February 2015, the Company entered into a lease agreement for
a research facility located in Daytona Beach, Florida. The Company leased this 3,200 square foot facility under a month-to-month
lease agreement which ended on December 31, 2016. The monthly rent, including sales and use taxes, was $2,929. In accordance with
the terms of the leasehold agreement, we were responsible for all utilities, repairs and maintenance. In June 2016, the Company
provided notice that we were terminating this lease agreement effective July 31, 2016. There were no termination fees incurred
due to the lease being a month to month lease agreement. As of June 30, 2017, the Company has accrued $7,891 for past rent owed
less a deposit of $2,500 (total $5,391). The Company has since relocated all property and equipment as well as all personnel previously
occupying this facility to our corporate headquarters located in Lake Park, Florida.
Total rent expense for the six months ended June 30, 2017 and 2016
for these facilities, before adjustments of reclassified facilities cost for research and development, totaled $43,277 and $60,849,
respectively.
NOTE 10 – RELATED PARTY TRANSACTIONS
The Company’s executive officers and employees, from time
to time, make payments for materials and various expense items (including business related travel) in the ordinary course of business
via their personal credit cards in lieu of checks drawn on Company accounts. The Company does not provide its employees or executive
officers with corporate credit cards. Amounts due these officers and directors (including one of the Company’s directors,
the president and chief executive officer, and the controller) are included in accounts payable, related parties, on the Condensed
Consolidated Balance Sheets.
As of June 30, 2017, one of the Company’s directors held four,
separate convertible notes issued by the Company. These convertible notes reflect a portion of the aggregate amount that such outside
director is owed by the Company for a combination of (i) certain vendor payments made by him on the Company’s behalf, (ii)
cash previously advanced to the Company for working capital, and (iii) director’s fees earned through September 15, 2016.
One of these notes, in the face amount of $60,000, was issued to a company controlled by the director, is due on demand, together
with accrued interest at 4.5% APR, and is convertible at $0.01 per share of common stock. Another of these notes, issued to the
director personally, is in the face amount of $30,000, is similarly due on demand, together with accrued interest at 4.5% APR,
and is convertible at $0.01 per share of common stock. The third of these notes, also issued to the director personally, is in
the face amount of $55,500, is due on demand, together with accrued interest at 4.5% and is convertible at $0.007 per share of
common stock. The fourth note, issued in the name of the director’s son, is in the face amount of $20,000, is due on demand,
together with accrued interest at 4.5% and is convertible at $0.005 per share of common stock. See Note 7.
As of June 30, 2017, the Company’s outside general counsel
held three convertible notes issued by the Company. One such note reflected an amount due for legal services provided for the year
ended December 31, 2014 in the amount of $150,000. This note is payable by the Company on demand, together with accrued interest
at 4.5% APR, and is convertible at $0.01 per share of common stock. Another of these notes reflected an amount due for legal services
provided for the year ended December 31, 2015 in the amount of $120,000. This note is similarly payable on demand, together with
accrued interest at 4.5% APR, and is convertible at $0.007 per share of common stock. A third note is in the amount of $10,000,
reflects funds advanced to the Company for working capital, is due on demand, together with accrued interest at 12% APR, and is
convertible at $0.008 per share of common stock. See Note 7.
As of June 30, 2017, the Company had issued a total of six (6) convertible
notes to a certain related party investor and significant shareholder. The first such note is in the amount of $100,000, is due
on November 13, 2018, together with accrued interest at 10% APR, and is convertible at $0.01 per share of common stock. The second
such note is also in the amount of $100,000, is due on March 18, 2019, together with accrued interest at 10% APR, and is convertible
at $0.01 per share of common stock. The third such note is in the amount of $50,000, is due on May 12, 2019, together with accrued
interest at 10% APR, and is convertible at $0.01 per share of common stock. The fourth such note is in the amount of $100,000,
is due on June 7, 2019, together with accrued interest at 10% APR, and is convertible at $0.01 per share of common stock. The fifth
such note is in the amount of $300,000, is due on July 28, 2019, together with accrued interest at 10% APR, and is convertible
at $0.01 per share of common stock. And the sixth such note is in the amount of $50,000, is due on demand, together with interest
at 10% APR, and is convertible at $0.01 per share of common stock. See Note 7.
As of June 30, 2017, one of the Company’s directors held one
convertible note issued by the Company in the face amount of $20,500 (for director’s fees earned through September 15, 2016),
which note is due on demand, together with accrued interest at 4.5%, and is convertible at $0.007 per share of common stock. See
Note 7.
The Company accrued payroll earned, by related parties, during the
six months ended June 30, 2017 and 2016, respectively, in the total amount of $124,382 and $520,954 for the Company’s president
and chief executive officer and controller.
As of June 30, 2017, the Company’s president and chief executive
officer held one convertible note issued by the Company representing previously accrued base salary in the amount of $349,329.
The note payable is due on demand, together with accrued interest at 4.5%, and is convertible at $0.007 per share of common stock.
See Note 7.
As of June 30, 2017, the Company’s controller held one convertible
note issued by the Company representing previously accrued base salary in the amount of $134,604. The note payable is due on demand,
together with accrued interest at 4.5%, and is convertible at $0.007 per share of common stock. See Note 7.
As of June 30, 2017, the Company’s vice president of research
and development held one convertible note representing previously accrued base salary in the amount of $49,000. The note payable
is due on demand, together with accrued interest at 4.5%, and is convertible at $0.007 per share of common stock. See Note 7.
As of June 30, 2017, an independent contractor who had been the
president of one of EcoSmart’s divisions prior to the merger with the Company, who is also shareholder of the Company, held
one convertible note representing accrued earnings in the amount of $25,700. The note payable is due on demand, together with accrued
interest at 4.5%, and is convertible at $0.007 per share of common stock. See Note 7.
Advanced Nanofibers LLC (“Advanced”) is a variable interest
entity of which the Company owned a minority 31.37% interest at June 30, 2017 and, for accounting purposes under FASB guidelines,
is considered the primary beneficiary among the equity participants based on qualitative and quantitative criteria. The two controlling
members of Advanced include the Company and Nanotech Fibers LLC. The Company’s president and chief executive officer currently
holds a 18.75% equity interest in Nanotech Fibers LLC through a closely-held, private Florida limited liability company, August
Center Street Holdings LLC. August Center Street Holdings, LLC is owned 75% by the Company’s president and chief executive
officer and 25% by the Company’s general counsel.
During the six months ended June 30, 2017 and 2016, the Company
recorded revenue for sales to shareholders in the amount of $49,087 and $47,782, respectively. For the six months ended June 30,
2017, one shareholder accounted for approximately 28% of Company revenue and, as a group, the sales to shareholders accounted for
approximately 29% of Company revenues. These revenues are recorded as revenue, related party on the Company’s Condensed Consolidated
Statements of Operations.
NOTE 11 – SEGMENT INFORMATION
The Company reports segment information that is consistent with
the management and measurement system utilized within the Company. This approach designates the internal reporting used by management
for making decisions and assessing performance as the source of the Company’s reportable operating segments. The segments
represent components of the Company for which separate financial information is available that is utilized on a regular basis by
the chief operating decision maker (the chief executive officer) in determining how to allocate resources and evaluate performance.
The accounting policies of the segments are the same as those described in Note 1, “Organization and Summary of Significant
Accounting Policies” of the Notes to Consolidated Financial Statements that are contained in our annual report on Form 10-K
for the fiscal year ended December 31, 2016. The Company’s reportable operating segment consists of Advanced. For the six
months ended June 30, 2017, Advanced had no revenue, an operating loss of $139,433, assets in the form of cash totaling $96,492
and liabilities in the form of accounts payable totaling $84,655. See Note 3.
NOTE 12 – DISCONTINUED OPERATIONS
As of June 30, 2017 and 2016, the Company has presented $114,368
of Accrued royalties in discontinued operations. The royalties pertain to the Company’s sale of the QuickVerse
®
product line in 2011.
NOTE 13 – SUBSEQUENT EVENTS
In July 2017, the Company’s ownership interest in Advanced
Nanofibers LLC decreased from 31.37% to 31.06% due to the addition of a new member to the LLC.
In July 2017, the Company extended the classes of directorship terms
for our board of directors, including Class I, Class II and Class III, each for a period of two years to expire on July 22, 2018,
July 22, 2019, and July 22, 2020, respectively.
In July 2017, the Company issued a convertible note payable in the
amount of $28,500 to an outside director and shareholder for accrued director’s fees earned from September 16, 2016 through
June 30, 2017. The note payable is due on demand, together with accrued interest at 4.5% APR, and is convertible at $0.015 per
share of common stock.
In July 2017, the Company issued a convertible note payable in the
amount of $9,500 to an outside director and shareholder for accrued director’s fees earned from September 16, 2016 through
June 30, 2017. The note payable is due on demand, together with accrued interest at 4.5% APR, and is convertible at $0.015 per
share of common stock.
In July 2017, the Company issued a convertible note payable in the
amount of $87,532 to the Company’s president and chief executive officer for previously accrued base salary earned from September
16, 2016 through June 30, 2017. The note payable is due on demand, together with accrued interest at 4.5% APR, and is convertible
at $0.015 per share of common stock.
In July 2017, the Company issued a convertible note payable in the
amount of $28,010 to the Company’s controller for previously accrued base salary earned from September 16, 2016 through June
30, 2017. The note payable is due on demand, together with accrued interest at 4.5% APR, and is convertible at $0.015 per share
of common stock.
In July 2017, the Company committed to issue 87,123 restricted shares
of Company common stock to an independent contractor for certain business development services provided. The agreement with the
independent contractor calls for the contractor to be paid at an hourly rate of $100, half of which is payable in cash and half
of which is payable in restricted shares of Company common stock, such shares to be valued at the closing price of Company common
stock on the relevant service day(s).
In August 2017, the Company sold 3,000,000 restricted shares of
common stock at $0.01 per share for total proceeds of $30,000.